On October 11, the 'Science and Technology Innovation Board Daily' (Reporter Zheng Bingxun) after months of planning, an investment cooperation between Frontier Biotech (688221.SH) and Multisal Pharmaceutical (301075.SZ) finally came to fruition.

On the evening of the 10th, Frontier Biotech announced publicly that, including itself, along with its wholly-owned subsidiary 'Shanghai Jianling' and its subsidiary 'Sichuan Frontier', had jointly signed a 'Equity Transfer Agreement' with Multisal Pharmaceutical and its holding subsidiary 'Rui Lekang' in October of this year, subject to effectiveness conditions.

▌Frontier Biotech's 'Arsenic'

According to the equity transfer agreement, Frontier Biotech plans to transfer 70% of the equity of Shanghai Jianling to the acquirer Rui Lekang for a transfer price of 77 million yuan. At the same time, Rui Lekang also needs to provide funding to Sichuan Frontier to repay the principal and interest owed by Sichuan Frontier to Frontier Biotech, totaling 0.194 billion yuan.

This means that in order to obtain 70% equity of Shanghai Jianling, Rui Lekang actually needs to pay an amount of 0.271 billion yuan.

Furthermore, Sichuan Frontier had previously signed a loan agreement with China Citic Bank Corporation, for which Frontier Biotech provided a guarantee, with the maximum principal debt under the guarantee being 0.2 billion yuan. As of now, the remaining balance of the loan under this guarantee is 90 million yuan. In response to this matter, Multisal Pharmaceutical has promised that if Frontier Biotech fails to have the loan guarantee released by the end of 2024, Frontier Biotech has the right to cancel the equity transfer agreement.

Frontier Biotech is clearly holding a positive attitude towards this equity transfer, stating that it can reduce fixed asset operating costs, improve cash flow, and help focus on the commercial promotion of the marketed product Aikening and the research and development of pipeline products, aligning with the actual operational situation and future development needs of the company.

After this transaction is completed, Frontier Biotech still directly holds a 30% equity stake in Shanghai Jianling, and indirectly holds a 30% equity stake in Sichuan Frontier through Shanghai Jianling. However, Shanghai Jianling and Sichuan Frontier will no longer be included in the consolidated financial statements of Frontier Biotech.

Data shows that in 2023, Shanghai Jianling achieved revenue of 11208.3 million yuan, with a net loss of 32530.8 million yuan, while Sichuan Frontier had revenue of 11203.9 million yuan, with a net loss of 16296.5 million yuan. From January to August 2024, Sichuan Frontier continued to incur a net loss of 9183.5 million yuan, while Shanghai Jianling had a net loss of 9185.6 million yuan.

Affected by this, as the parent company, Frontier Biotech's performance is not optimistic. In 2023, Frontier Biotech achieved revenue of 11.4 billion yuan, with a net loss attributable to the parent company of 32.9 billion yuan. In the first half of 2024, revenue was 51.056 million yuan, with a net loss attributable of 0.16 billion yuan.

Without the drag of Shanghai Jianling and Sichuan Frontier on the financial statements, Frontier Biotech expects that after this transaction is completed, the company's consolidated financial statements will generate investment income of approximately 80 million yuan. Moreover, prior to this transaction, Frontier Biotech had already secured Sichuan Frontier as the future active pharmaceutical ingredient contract manufacturer to ensure the production capacity of the future of EKON active pharmaceutical ingredients.

Currently, Frontier Biotech only has one commercially approved product on the market - EKON, a long-acting anti-HIV virus fusion inhibitor, providing core income and profits. In 2023 and the first half of 2024, EKON brought in sales revenue of 0.11 billion yuan and 44.4402 million yuan respectively, accounting for as high as 96.03% and 87.04% of total revenue.

It is worth mentioning that this year, several ongoing projects at Frontier Biotech have been announced to be terminated due to lack of progress, including the "FB2001 research and development project of developing anti-new coronavirus products in the mid-term analysis stage project," as well as the core projects such as the "EKON + 3BNC117 combination therapy clinical research and development project" and the "new transdermal analgesic patch AB001 clinical research and development project."

(Frontier Biotech takes another 0.85 billion idle fundraising financial management with several fundraising projects progressing unfavorably and plans being terminated)

The termination of these projects means that Frontier Biotech will still need to rely on EKON to support its main source of income for some time in the future. However, with the continuous progress of several research and development projects and daily operations, Frontier Biotech's cash reserves are being constantly depleted. In 2021, Frontier Biotech's cash and cash equivalents balance was 0.797 billion yuan, decreasing to 0.526 billion yuan by the end of 2023, and further decreasing to 0.375 billion yuan as of the first half of 2024.

The "honey" of Dorra Pharmaceuticals.

As the saying goes, "What is arsenic to me is honey to you." The Shanghai Jianling and Sichuan Frontline, which the cutting-edge biotech is eager to transfer, seem to be a "gift in the snow" to the acquiring party Ruilukang and its controlling shareholder Dorra Pharmaceuticals.

Information shows that Sichuan Frontline has invested in and built a high-end polypeptide active pharmaceutical ingredient production base in Jintang County, Chengdu, covering an area of about 167 acres. Currently, the Phase I project of Sichuan Frontline has been completed and obtained a pharmaceutical production license.

Dorra Pharmaceuticals revealed that after this transaction is completed, Shanghai Jianling will be included in the company's consolidated financial statements, which will facilitate the company to accelerate the extension layout of the active pharmaceutical ingredient industry and seek new revenue growth points.

It is understood that Dorra Pharmaceuticals is a pharmaceutical company engaged in the research and development, production, and sales of chemical drug formulations and their active pharmaceutical ingredients. Its main products currently include two pharmaceuticals - Sodium Acetate Ringer's Injection and Amoxicillin Sodium Clavulanate Potassium for Injection, as well as some intermediate business, etc.

Among them, Sodium Acetate Ringer's Injection is the largest source of revenue for Dorra Pharmaceuticals. From 2021 to 2023, its sales revenue accounted for 87.87%, 74.10%, and 69.01% of the total revenue respectively. In the first half of 2024, the revenue share of Sodium Acetate Ringer's Injection still accounts for 43.65%, significantly higher than the revenue share of the agent product Amoxicillin Sodium Clavulanate Potassium for Injection at 13.01%, and the intermediate business at 12.09%.

However, due to the impacts of factors such as medical insurance cost control, group procurement, etc., the sales of Sodium Acetate Ringer's Injection have been continuously decreasing in recent years, with sales revenue of 0.465 billion yuan, 0.297 billion yuan, and 0.231 billion yuan in 2021-2023, and 65.6405 million yuan in the first half of 2024.

Affected by this, Doron Pharmaceutical's overall revenue has been declining year by year, reaching 0.53 billion yuan, 0.401 billion yuan, and 0.334 billion yuan in 2021, 2022, and 2023 respectively. In the first half of 2024, Doron Pharmaceutical's revenue further decreased by 11.75% to 0.15 billion yuan, resulting in the company's net income turning from profit to a loss for the first time, amounting to 3.2764 million yuan.

In fact, Doron Pharmaceutical has also realized that the company's sales revenue relies heavily on a single product. If it cannot maintain a leading position in the market in the future, it will affect the company's continuous profit-making ability. In the interim report for this year, Doron Pharmaceutical stated that it is accelerating the progress of new product development, increasing the variety of agency products, and openly exploring enriching the product range through acquisitions and other means.

As the acquiring company of Ruilekang, Doron Pharmaceutical stated that it will use its own funds or self-raised funds to complete the transaction. As of the end of June 2024, Doron Pharmaceutical had a balance of cash and cash equivalents of 0.243 billion yuan, but the company also stated that this transaction will not have a significant adverse impact on the company's finances.

In fact, Doron Pharmaceutical has already paid an initial investment of 10 million yuan for this transaction. According to the arrangement, within 10 working days after the agreement takes effect, the acquirer needs to pay 77 million yuan for the equity transfer and 64.2614 million yuan for the repayment of part of Sichuan Frontier's debt, with the remaining amount to be paid within a maximum of 18 months after the equity transfer registration.